Shares of packaged food company B&G Foods (BGS) have been cut in half in the past year. One trader sees further downside in the months ahead.
That’s based on the January 2023 $12.50 puts. With 87 days until expiration, the options saw a volume of 5,061 contracts, a 42-fold surge in volume from the prior open interest of 121. The buyer of the puts paid $0.85 to get into the trade.
Shares recently traded closer to $14.50, so they’d need to fall about $2, or about 14 percent, for the option to move in-the-money. That would also mark a new 52-week low compared to the prior low of $14.02.
The company has seen earnings collapse by 99 percent in the past year, even with a 3 percent increase in revenue. Higher food input costs, as well as fuel costs for packaging and transportation have weighed on the company, and are likely to do so for some time.
Action to take: Investors are seeing a 13 percent dividend yield here, although that will likely be cut in time given the high payout ratio relative to earnings. Interested buyers would be better off waiting for a dividend cut before buying shares.
For traders, the January puts are well positioned and priced for a further drop in the months ahead. Look for high double-digit returns on the trade.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.